The online encyclopedia Wikipedia (http://en.wikipedia.org/wiki/Mutual_insurance) characterizes a mutual insurance company as an insurance company that has no shareholders. Instead, the company is owned entirely by its policyholders. Consequently, profits are rebated to the policyholders in the form of dividend distributions or reduced future premiums. The idea of owning a portion of a company may be more attractive to some potential clients than the idea of being a source of profits for investors. This ownership either extends to all its policyholders or is restricted to certain classes of policyholders. Ownership rights typically include voting rights, for instance in the election of the board of directors. In a mutual insurance company, any distributed surplus funds are paid entirely to policyholders, whereas in a proprietary or stock company (one with shareholders) a proportion of the surplus is paid to shareholders, while the balance is held in reserve by the insurer.
Currently in the U.S. there is a strong need to develop civic infrastructure (e.g., roads, bridges, sewers, and the like). Unfortunately, municipalities are experiencing declining revenues so investment in civic infrastructure is difficult to accomplish. Civic infrastructure projects are commonly funded by bonds. A bond issuer collects money from investors and promises to pay back the money with an interest premium. The repaid money is typically derived from revenues associated with the investment project (e.g., tolls collected on a newly constructed road or bridge). Bond issuers typically desire some type of bond insurance to insure an investor against default. Such insurance provides a higher financial strength rating for investors, which provides more access to investors who value the credit enhancement, selection process and oversight that the financial guarantor provides. Such insurance is difficult to secure today because previous bond insurers were hard hit by excessive exposure to the U.S. housing sector.
In view of the foregoing, it would be desirable to provide new mechanisms to foster investment in civic infrastructure. More particularly, it would be desirable to provide new mechanisms for funding and operating a municipal financial guaranty mutual insurance company.